For thousands of years people of the world have engaged in trade. Trade fuels economies, creates jobs, increases the selection of goods available to consumers, and promotes the diffusion of cultures. In many countries, including the United States (“U.S.”), one of the earliest sources of revenue to the government was the assessment of duties against imported goods. Until recently, each country tended to use their own singular system for categorizing imported goods. Since 1988, many countries of the world have begun using a harmonized system of tariff classification that was adopted at the International Convention on the Harmonized Commodity Description and Coding System. As a result, the tariff number headings and sub-headings are now the same in any country that is a signatory to the Harmonized System Convention. The tariff numbers and commodity descriptions are published by each country and mandated to be used for almost every imported item. The tariff numbers provide governments a systematic way to categorize all imported goods, to make duty assessments, to gather trade statistics, to share trade data with other countries, and for other purposes. In most countries, the tariff number must be determined and reported at the time of export and then at the time of importation into the destination country. For shipments between countries that have adopted the Harmonized System Convention, the assigned tariff numbers have validity in both countries.
U.S. importers are required by law to take responsibility for providing to U.S. Customs the correct tariff classification for each imported item and to pay the correct duty on the goods imported. In common U.S. business practice the importer employs the services of a custom house broker to handle most aspects of their import customs clearances. However, with passage of the Customs Modernization Act in 1993 the importer became fully liable for the accuracy of information presented—regardless of who does the customs compliance work.
The process of identifying and assigning tariff numbers to commodities is often inexact, tedious, and manually performed. Much of the information and resources necessary for accurate tariff processing may not be available to the customs broker. Importers and customs brokers spend a large amount of time assigning tariff numbers to imported goods. And, it is not uncommon for this process to be performed repeatedly for the exact same commodity due to the inability to access the information that may have already been determined during a previous importation. Working against the legal requirement for accurate tariff number identification is the time pressure to obtain release of the goods quickly. The later objective often compromises the integrity of accurate tariff assignment.
Additionally, the tariff processing is often performed by individuals who are poorly trained and who are burdened with many other imports to simultaneously process. Complex tariff number assignments and high item count imports require an especially large amount of time to process. This time is often not available to the average customs broker. Nevertheless, the importer may still be subject to severe fines, penalties, and sanctions should their customs information be found to be inaccurate.
To further elucidate the process and its greater context, consider a typical air freight import transaction. When the goods are ready to be exported from the foreign country, the shipper will prepare a commercial invoice. The invoice accompanies the goods as they are transported to the departure airport. In most countries (and depending upon terms of shipment) the exporter will contact a freight forwarder who will coordinate transportation of the goods, prepare and submit export clearance documents (containing HTS numbers), and will book the cargo with an airline. The freight forwarder also prepares bills of lading as a contract of carriage for the goods. Both the invoice and the bill of lading as a contract of carriage for the goods. Both the invoice and the bill of lading are distributed to the import clearance agent in the U.S. Upon importation, the importers designated Customhouse broker prepares and submits Customs entry paperwork (containing HTS numbers) to U.S. Customs in order to obtain release of the goods.
During the preparation of the Customs entry paperwork, a Harmonized Tariff Number must be assigned to each item listed on the import invoice(s). In common practice, the Customs broker uses inefficient and imprecise manual methods to determine and assign the HTS numbers. The extensive contents of the Harmonized Tariff Schedule are perused (containing over 8000 HTS numbers), handwritten notes are consulted, files of previous importations are pulled, and/or printed lists may be consulted. The accuracy of this process can also be impaired by the common usage of Customs brokerage agents who are inadequately trained and who are burdened with many other imports to simultaneously process. In conjunction with the HTS assignment process, the Customs broker extracts additional information from the invoice, the bill of lading(s), and other supporting documents. The information is then submitted t U.S. Customs electronically or on paper using forms, protocols, and formats proscribed by Customs. Complex tariff number assignments and high item count importations require an especially large amount of time to process. This time is often not available to a Customs broker. Nevertheless, the importer may still be subject to severe fines, penalties, and sanctions should their Customs information be found to be inaccurate.
An exportation from the U.S. is performed in a manner similar to the process just described for importation. In particular, the process of assigning HTS numbers for export purposes is still usually performed using inefficient and inaccurate manual methods.
The problem with the foregoing process is that the tariff classification has to be performed manually by a customs broker having to identify the goods, and then manually compare that identification in a tariff classification book, and then manually entered into proprietary systems to calculate any duties owed to the government customs office. Such a manual process is tedious, expensive, time consuming and prone to errors. Therefore, what is needed is a system whereby the importer can take an active role in managing their commodity/tariff number assignments prior to importation; when most tariff decisions have already been made prior to an importation; and when the predetermined tariff numbers can be quickly and efficiently assigned to each associated imported item. For review and use by parties to the import or export transaction.